To prevent bank runs, FDIC wants to shore up its coverage of bank accounts

The precarious and jittery state of some regional banks has prompted the Federal Deposit Insurance Corporation to come up with a plan to calm the waters a bit.

The FDIC, of course, is the government agency whose name is displayed on the doors of many banks because it insures bank deposits; up to $250,000 per depositor per bank.

It released a report on Monday with suggestions on how to improve federal backstops on deposits that could help bank customers breathe easier instead of withdrawing their money in a panic. 

The report offers three options. Number one: increase the deposit insurance limit from its current level of $250,000. Number 2: fully insure all deposits. Number 3: insure business accounts used for payroll and other expenses. 

“To the extent this restores confidence, that could ensure the stability of the financial system,” said Edward Mills, an analyst at Raymond James, which is a Marketplace underwriter. Mills especially likes the idea of insuring those payroll accounts.

“If you don’t have to worry about the insurance on those deposits, you are more likely to keep those deposits within a bank,” he explained, instead of panicking and joining a bank run. 

William Isaac also likes the idea of insuring payroll accounts. He headed the FDIC in the 1980s. And he said this option would improve the stability of banks and their communities.

“And the people that … the grocery stores and the gas stations that serve those employees … need for those employees to have their paychecks,” he said.    

But the FDIC can’t act alone. It needs approval from Congress, and lawmakers are a bit preoccupied right now battling over the debt limit. Henrietta Treyz, economic policy director at Veda Partners thinks the chances of Congress getting to these deposit insurance reforms are pretty slim.

“I would say the odds [are] at 10%, at this point,” she said.

But she said those odds will increase if more banks fail in more congressional districts — especially in the Midwest where they would affect “farming sectors, the auto industry … then you start to see material change and a sense of urgency develop,” said Treyz.

The FDIC would welcome some urgency. Its report said uninsured depositors triggered the failures of Silicon Valley Bank and Signature Bank.